Quake Coverage Sticker Shock Awaits Many

Insurance: Premiums are based on total value of property--including portions not covered by the policies, such as garages.

Paul Masi, retired and living in Ventura, is having a problem with earthquake insurance that will affect thousands of other California homeowners--although many don't know about it yet.

Masi was stunned when he opened his insurance bill in August and found out that his annual quake premium had increased to $2,701. This compared to $338 he paid in 1993 before the Northridge quake.

Now, after more than three months of negotiations, his insurer--CNA--has agreed to cut his $360,000 policy by $60,000 after a new property appraisal, lowering premiums by a sixth. But Masi still will be paying $2,250 this year for quake coverage for his residence on a Ventura Keys yacht channel.

Under laws that have gone into effect the last two years, his premium will be based on the total appraised value of the home, including his garage, fences, patios and even ramps leading to his boat.

Yet CNA has informed him that there will be no earthquake coverage for the garage, fences, patios and ramps, even though he has paid quake premiums on them.

The state Insurance Department says it has decided that this is legal.

CNA is one of the companies--which all together have 71.6% of the residential quake market in the state--that have decided to join the new quake insurance agency, the California Earthquake Authority. CNA's rates are higher than the quake authority's will be. So, in September, when Masi's premium year begins, his quake policy will be placed with the authority and the premium will decline.

But the quake authority, according to its managers, will be following the same overall rules. It too will base the premium on the whole value of one's property, including portions not covered for earthquakes.

This, along with a deductible that has increased to 15% and pared-down coverage, is engendering quite a controversy.

"It's a real fiasco," Masi said this week. "At times, I have to laugh."

Greg Butler, chief executive officer of the quake authority, said, "We're going to follow a policy of insuring up to the A [whole] value for earthquakes."

He said that when a fire occurs, there is seldom damage to the foundation of the house, so the costs of rebuilding--under a regular homeowners policy--are held down. But when a severe quake occurs, he said, there is often serious damage to the foundation, and costs soar.

So, in the interest of balancing out such considerations, it was decided to charge quake premiums based on everything, he said.

Consumer representatives on the advisory panel of the quake authority have been vigorously protesting Butler's decision.

"It's collecting a premium on things they're never going to pay off on, and I think that's illegal," said Ina Delong, head of Policyholders United and an advisory board member.

Delong suggested that many future quake victims, unable to accumulate their own financing for repairs before insurance kicks in, would have to abandon their homes.

William Ahern, the Consumers Union representative on the advisory panel, said, "They're not paying all that much in benefits, and they are collecting a vast extra premium."

The consumer representatives said that when one calculates the deductible as a percentage of the amount of property that is covered, it amounts to more than 20%, not the stated 15%.

Richard Wiebe, a spokesman for Insurance Commissioner Chuck Quackenbush, confirmed that Quackenbush had approved CNA's rate for this year.

Because of the exemptions and higher deductible authorized by the Legislature in its "mini-policy" law of 1995, coverage will be less than half what it was before Northridge.

Among major reductions in coverage by virtually all companies throughout the state under the mini-policy law, contents coverage is limited to $5,000 in a quake and extra living expenses to $1,500.

Masi, for example, would have to sustain $45,000 in coverable damage before qualifying for the first dollar of relief under the quake policy, and damage to his garage, patios and other uncovered items could not be used to help satisfy that deductible.